DOHA: An estimated $380bn worth of investment has been deferred in the global oil and gas sector projects running till 2020, since the beginning of the drop in oil price in mid-2014, Minister of Energy & Industry H E Dr Mohammed bin Saleh Al Sada (pictured) stated yesterday.
It is likely that this cut in capital expenditure may go up if oil price remains in the current range. “It is the first time we have witnessed two consecutive years of such a huge cut in investment during the past two decades”, the Minister said in the context of current oil price, which has fallen 18 percent since the beginning of 2016. “Current price of oil is not sustainable and hence it should change”, he said.
The current level of oil price is below a lot of conventional oil production cost, let alone non-conventional oil. Its unsustainability, therefore, manifested itself visibly by a huge drop of investment estimated to be $130bn, or 20 percent, in 2015 alone followed by 16 percent in 2016.
Impact of this substantial drop in investment is already beginning to be seen in a drop in drilling rigs world wide — conventional and non-conventional, especially the US.
It is bound to manifest itself down the road, while world demand is increasing annually.
Signs of drop in production, especially outside Opec, is beginning to be seen with a drop of 400,000 bpd over the last 8 months in US alone from 9.6 million bpd to 9.2 million bpd.
In 2015, it was reported that 24 US oil and gas companies went bankrupt and sought Chapter 11 protection. That was while Brent oil averaged $52. With prices further down by 18 percent during this month from the beginning of the year, it is fitting to say that the hardship on oil and gas companies and bankruptcy will be further aggravated. US shale oil is reported to need an average of $55 a barrel for viable production, with the current oil price is much below this level. It is expected that Shale oil production will decline and US oil production during 2016 is expected to be at 2014 levels of 8.7 million bpd.
“The trend is likely to continue into 2017 if we consider that even at a scenario of modest world economic growth, it is estimated that demand will increase by 1.4 million bpd this year. Total demand is expected to be more than 95 million bpd this year. Under the current circumstances, oil will turn into a new bull market before the year is out, as the current drastic price drop shuts enough production and erodes the global oversupply.
Qatar is the current President of the Opec Conference.
Meanwhile, oil prices rallied sharply yesterday, regaining $32 per barrel as traders mulled talk of an Opec-Russia coordinated output cut to curb oversupply. At about 1800 GMT, Brent North Sea crude for delivery in March jumped $1.84 at $32.34 per barrel.
The Peninsula
